Bill Ackman Discusses Herbalife

Bill Ackman is the final speaker at the 2013 Harbor investment Conference. Ackman is expected to speak about Herbalife Ltd. (NYSE:HLF). Ackman auctioned off lunch before starting his presentation.

Stone House Capital is an 18 month old hedge fund. Bill Ackman noted that he almost never invests in hedge funds, but he has money in Stone Hedge. The founder of the $40 million hedge fund spoke briefly at the conference.

We will be live blogging Ackman’s speech which will be followed by a Q&A.

5:02: Ackman notes that Kinder Morgan came under attack by short sellers 8-9 years ago, especially since CEO was from Enron. Ackman thought this was unfair, but noted the response of the CEO.

5:04: The CEO did a call and promised to answer all questions which investors had. Ackman notes that Pershing is an activist hedge fund and rarely shorts companies.

5:05: Ackman notes that he did 18 months of research which showed that Herbalife Ltd. (NYSE:HLF) was a pyramid scheme. He also notes that the company was highly unethical.

5:07: Bill Ackman says the biggest risk of shorting Herbalife was whether regulators in ’87 countries’ would take action. Ackman thanks the longs including Carl Icahn and Dan Loeb.

5:08: Ackman notes that unlike Kinder Morgan which answered questions the next day, Herbalife took three weeks and gave very vague answers. The press was not allowed and Ackman was banned from the conference (as we previously reported). The CEO today said he will answer all questions shortly according to Fox Business Network (FBN).

5:11: A week ago Ackman put out 40 pages of questions to Herbalife Ltd. (NYSE:HLF). Ackman says the questions are basic and the company has refused to answer any of those questions.

5:12 Ackman is now taking questions.

5:12 Someone asked Ackman if his views on the Hong Kong Dollar has changed? Ackman notes that Hong Kong has become AAA since then, and is a different countries now.

5:13: Ackman notes that the pegged currency is unsustainable as the income gap grows. The currency has become stronger even as the Government has printed money. Ackman notes that since he bought options with 70:1 return he can buy more if these options expire worthless.

5:15: Ackman gets into JC Penny (JCP) which should do better as the economy improves. However, Ackman notes that he does not use leverage and the companies he owns are more insulated. Ackman says that Pershing Square was buying CDS on Europe due to fear over a Euro collapse. Pershing Square still has this position, but the hedge fund does not hedge short term volatility.

5:18: Bill Ackman notes that we have had huge problems over the past 100 years (wars, inflation, depressions etc) but over time it is better off not hedging.

5:20: Ackman back to JC Penny (JCP) notes that the experience is completely different. The problem is that promotions being removed had big impact. He believes that consumers like to have an anchor price, so that was a mistake by Ron Johnson.

5:22: Ron gets picked on more than any other CEO in the country, according to Bill Ackman. Ackman believes that anytime everyone says everything is bad its time to look at the stock.

5:27: Ackman notes that JCP is trading just above book value, which seems pretty cheap.

5:28: Ackman notes that when he went public with his MBIA short many years ago he was unknown and this company had a huge amount of support among companies. So the Herbalife short situation is different than the MBIA short.

5:29: Ackman says he learned from the MBIA short. Additionally, if Herbalife disappears very few people will loose out. Only a tiny drop of people who make the money selling their products .

5:31: Ackman stresses that the population most hurt is the hispanic community. He also notes that besides the FTC, many other agencies can step in. However, an encouraging sign is that the FTC shut down an MLM just two weeks ago. If the FTC misses Herbalife it would be like missing Madoff.

5:33: All that is needed is just one regulator. According to the WSJ, the SEC has launched an inquiry into Herbalife. If the FTC does not act and a different regulator gets involved the FTC will look very bad.

5:35: Ackman believes that the message is also getting to distributors, and this publicity will make it very hard to get more distributors. Ackman thinks that Q1 will be very bad for the company.

5:36: Another catalyst could be that the auditor, KPMG might not be willing to sign off on Herbalife Ltd. (NYSE:HLF) documents anymore.

5:38: Asked about Apple, Ackman believes that the future of the company is difficult to predict. Therefore, he is not interested in investing. However, Ackman notes that the products from Apple are top notch and Ron Johnson did great job there.

5:39 Herbalife was up 1.11% in today’s trading session, it is down 1.10% at the current time.

5:48: The argument that the FTC hasn’t done anything for 31 years why now? There are many regulators including 50 states, and 87 regulators around the world. In response to John Hempton’s argument that only 20% of business is in the US, Ackman says the US has power around the globe. Additionally, no one wants to be associated with a pyramid scheme.

5:50: Ackman would not comment on conversations with regulators regarding Herbalife.

5:51: Ackman says that longs could make money off HLF if they bought low, but he does not understand the long case for the stock.

5:54: When asked what Ackman thinks about other MLMs, Ackman says there is nothing wrong. You need to have real customer demand. Some of the best MLM companies are distancing themselves from Herbalife lately, as the CEO of Tupperware said on CNBC the other day.

5:55: Ackman says the problem with MLMs is in the case of Herbalife where 90% of distributors only make money from recruiting other distributors.